The iPhone’s Carrier Problem

By Jeremy Caplan

It’s one thing to get your hands on an iPhone, as folks camped out in front of Apple stores around the country will do by the weekend. But there’s no choice about the carrier: you only get AT&T (formerly Cingular) on an iPhone. And so far, the early reviews have not been kind to the mobile service and especially its cellular data network (”Pokey,” says the Wall Street Journal; “excruciatingly slow,” says the New York Times. A spokesman for AT&T said the company disagreed with those characterizations). Before the reviews emerged, AT&T tried to play down the speed issue and play up the new experience provided by Apple’s so-far well-received iPhone software. “It’s not just the speed of the uplink,” says Carlton Hill, an AT&T Vice-President. “It’s about the processor speed on a device and the application design that enhance the customer experience. There are a lot of ways to have an optimized data experience.” And the iPhone’s web capacities are said to improve dramatically when it can sync up with local Wi-Fi networks — if so, it would be a juxtaposition that may make the AT&T connection feel even slower.

Nevertheless, analysts expect that millions of consumers will eventually switch away from their current carrier to buy into Apple’s offering — and that says a lot about how frustrated people are with the wireless carriers. Forrester Research has found that the percentage of consumers who are happy with their carrier has fallen steadily year after year, and more than 80% of those surveyed by Measuredup.com, a customer service rating site, aren’t satisfied with their carrier’s service. Measuredup.com founder Marc Karasu says consumers are tired of carriers burning through hundreds of millions on ads while ignoring major service problems. “Customers are screaming for better service,” he says, “and if it doesn’t come from the carriers, it will come from someone else.”

Here’s a look at what frustrates consumers most (some solved on the iPhone, others not):

ONE: VOICE MAILConsumers are tired of wading through eight messages to hear the one they need (an inconvenience the iPhone is said to solve). And they are frustrated that carriers erase old messages and tightly cap your inbox. With data storage costs dropping, why can’t you keep your messages, or download them to your computer? Imagine if Yahoo! let you keep just 30 or 40 email messages at a time. (Instead they offer unlimited, free email storage). “People treat voice mail like toxic waste,” says Craig Walker, CEO and founder of GrandCentral, a startup that offers unlimited voice-mail storage. “They feel like they have to delete every single message. But what if they want to save something?” says Walker. “I have 10,000 emails in my inbox, which is incredibly valuable. I can go back and find an old message. People should be able to do the same thing with voice mail.” Consumers have long been able to save e-mails, forward them at will and access them in whatever order they want, so why is voice-mail stuck in the dark ages? The carriers haven’t improved voice-mail because it’s harder to market service features than, say, sexy phones that work exclusively on one network.

TWO: FEE CREEPAfter shelling out $40 or $50 a month for a basic calling plan, carriers pinch consumers for additional bucks over and over again. Starting with an activation fee and ending with a cancellation fee if you decide to switch carriers or want to cancel your service, consumers are squeezed for dozens of add-on charges. For ring tones, video services, text messages, and just about any specialty service that comes along to provide a convenience, dollars are tacked on to your bill. Apple and AT&T are taking a step away from that fee-squeezing model by offering all-in packages that include data, video and text messaging. They start at $60 a month, though, and climb to $100 for 1,350 monthly minutes of calling. That means that if you get the $600 model and choose the top minutes package, you’re going to shell out more than $3000 over the course of the required two-year contract. Oh, and you’ll still have to pay $36 for activation.

THREE: WALLED GARDENSThe carriers continue to block access to their networks by mobile startups even as these innovators offer new ways to watch and share video, trade pictures, and use phones in new ways. “They control the industry but strangle innovation,” says mobile industry consultant Chetan Sharma. They limit the things you can do with your phone. They want you to pay them for picture messaging, so they restrict independent providers of that type of service. They want you to buy ringtones from them, so they cut off growth and innovation in that mini-industry. They would prefer you to buy music and video from them as well, and they would rather you not call internationally without using their high rates. All of this means that consumers are consistently cut off from inventive startups. The carriers control billing for add-ons, and service providers selling ringtones, music, video, etc are so new that they need the carriers’ help to gain a foothold. When the carriers do open up to partners, they often demand a 50% of revenue, far exceeding the below 20% share carriers get in other countries.

FOUR: SLOW INNOVATIONThe mobile carriers have maintained unchallenged dominance over their markets — and their customers. That’s allowed them to preserve their potpourri of fees and to go slow on innovation, thus the stale approach to voice-mail and other services. Google recently proposed an auction system that would enable new players to buy into the wireless spectrum, an idea that could open the door to the sort of competition in the mobile world that enabled the high-speed access offered by better Internet Service Providers to topple AOL’s old stranglehold on its customers. The carriers argue that they have continued to innovate: “Over the last five years,” says Verizon Wireless spokeswoman Brenda Raney, “wireless phones have gone from simple calling devices to multifaceted device entertainment and productivity tools, because of broadband-like technology.” But American carriers have a long way to go. Phone service in the U.S. remains several steps behind Europe and Asia.

FIVE: SERVICE FAILURESThe leading Web merchants have set a high standard for quick response times and satisfaction guarantees. Consumers want to be listened to when they e-mail or call customer service. They hate waiting for 20 minutes on hold and they despise droning voice-mail menus with seven options, none of which is a real human on the other end of the line. If the carriers don’t step up their service, Google and other Web giants may find alternative routes for getting mobile services into the hands of consumers. Daniel Doutol, co-founder of SpinVox, an innovative voice-messaging startup, says it’s just a matter of time before companies like Google and Yahoo! compete more directly with the carriers. Both portals, like Apple, have fiercely loyal fans. About 55% of those asked in a survey by Equs Group, a market research firm, said they would happily buy a Google or Yahoo-branded phone. It’s a lucrative market: by 2010, about as many people will have a cell phone as a toothbrush.

Was fortunate to be among the 5000 who rushed to fill out the form and get to be on the cover of their very own WIRED print magazine. How cool is that?

People who missed out can create their digital cover at http://www.condenet.com/promo/xerox/. For getting the print version, you might consider the mighty Xerox iGEN3 Digital Production Press that made this all happen.

Valleywag has a nice summary of the four iPhone reviews that came out yesterday. By all accounts, the device launch is looking pretty stellar. If these reviews stand the first few days, Apple will blow past the initial estimates for the year. If they end up signing Vodafone or a carrier with good distribution for Europe, 10M might look child’s play. There are still a few unanswered questions but overall things are looking good for Apple. It must be fun to be in Apple PR these days.

Telephia released some interesting data for mobile video as well as mobile video ads.

Their latest research from the Mobile Video Report, showed that mobile TV/video subscription revenues grew 198% year-over-year to $146 million in Q1 2007. There are roughly 8.4 million mobile video subscribers, representing nearly 4 percent of the mobile population. In addition, mobile video consumers seemed primed for advertising, with nearly half saying that they are willing to view ads on their phones in exchange for something.

“Within a very short time, the number of mobile video subscribers has grown to over 8 million, comparable with the average audience size for an episode of The Sopranos this season,” said Kanishka Agarwal, vice president of mobile media, Telephia.

Probably the first public review of the device goes to David Pogue of NY Times (haven’t seen others yet, so could be wrong)

(Source NYT)

David starts with

Talk about hype. In the last six months, Apple’s iPhone has been the subject of 11,000 print articles, and it turns up about 69 million hits on Google. Cultists are camping out in front of Apple stores; bloggers call it the “Jesus phone.” All of this before a single consumer has even touched the thing.

So how is it?

As it turns out, much of the hype and some of the criticisms are justified. The iPhone is revolutionary; it’s flawed. It’s substance; it’s style. It does things no phone has ever done before; it lacks features found even on the most basic phones.

and he ends with

But even in version 1.0, the iPhone is still the most sophisticated, outlook-changing piece of electronics to come along in years. It does so many things so well, and so pleasurably, that you tend to forgive its foibles. In other words, maybe all the iPhone hype isn’t hype at all. As the ball player Dizzy Dean once said, “It ain’t bragging if you done it.”

Ravi Venkatesan, Chairman, Microsoft India is responsible for Microsoft’s marketing, operational and business development efforts in the country. In partnership with the leaders of Microsoft’s other business units, Venkatesan provides a single point of leadership for the company, playing an integral role in defining Microsoft’s relationship with policy makers, customers and business partners across Microsoft’s six distinct business units in India namely: Microsoft Corporation India (Pvt) Ltd, the Marketing Subsidiary, Microsoft India Development Center, Microsoft Global Technical Support Centre, Microsoft Global Development Center India, Microsoft Global Services India and Microsoft Research India.

The only way to stay ahead in the game is to focus on the customer. You have to hear and concentrate on the spoken and unspoken needs of consumer. Take for instance the success Apple has enjoyed with iPod. It’s not a technological innovation but a brilliant execution of an innate need of a customer, connecting the device and the online music service, which had never been clearly articulated. Much like the Walkman a few decades ago. Or X Box live. We realized people were not looking to just enjoy the game in their living rooms but also wanted to play with the best of the best, whoever they may be and anywhere they may be. And in addressing that need, we were able to close the gap on Sony.

AT&T Hoping the iPhone Has Coattails

SAN FRANCISCO, June 22 — When the iPhone goes on sale next Friday, people are likely to flood AT&T Wireless and Apple stores to check out the new device. But will the curiosity translate into big business for AT&T?

Industry analysts and executives offer mixed opinions about how much the iPhone will shake up the wireless business. They are torn, too, about how much it will benefit AT&T — Apple’s exclusive partner — in its fierce competition with Verizon, Sprint Nextel and other carriers.

But analysts can generally agree on one thing: the sleek touch-screen iPhone will change what consumers expect from the mobile phones offered by wireless companies.

The shift will be like the one caused by the skinny Razr from Motorola, the once wildly popular phone that became perhaps the first that people regularly asked for by name, said Chetan Sharma, a wireless industry consultant.

“The Razr redefined expectations,” Mr. Sharma said. “The iPhone will have a similar and larger impact.”

For Mr. Sharma, that impact will benefit AT&T only if its competitors fail to offer solid alternatives: “If they don’t have a compelling product in the market, it’ll start to show.”

The other carriers argue that they already have competitive devices that take sharp pictures, allow music downloads and are tailored for heavy use of text messaging and Internet access.

But it is a testament to the power of Apple’s brand name and reputation that many consumers appear to be giving it a chance to redefine phones as the iPod did music players. AT&T said 1.1 million potential customers had signed up on the company’s Web site asking to be contacted when the phone is for sale.

Steven P. Jobs, Apple’s chief executive, has said that he expects Apple to sell 10 million iPhones by the end of 2008. That projection could include sales outside the United States, but Apple has not yet announced any deals with foreign carriers.

M:Metrics, a market research firm, found in a recent study that 64 percent of American mobile phone users had heard of the iPhone and 14 percent of those would be “highly interested in buying one.”

The iPhone could bring AT&T more subscribers, but perhaps more important it could allow AT&T to position itself as a younger, hipper company, said John Hodulik, a telecommunications industry analyst at UBS.

For AT&T “the iPhone launch is bigger than the launch of a new device,” Mr. Hodulik said. “It’s something more strategic. It’s about moving the whole brand.”

The new phone comes at a challenging time for AT&T and an inflection point for the industry.

AT&T’s share of new monthly wireless subscribers has fallen steadily over the last year, notably since it purchased BellSouth and changed its wireless brand to AT&T from Cingular. In the second quarter of last year, 29.5 percent of new cellphone subscribers chose AT&T, but that figure was 25.8 percent in this year’s first quarter, Mr. Hodulik said.

At the end of the first quarter, AT&T had 62.2 million subscribers, slightly more than Verizon’s 61.5 million, said Jonathan Atkin, an analyst at RBC Capital Markets. But Verizon is catching up a little bit each quarter.

AT&T is already doing worse than Verizon in terms of customer turnover, or churn, Mr. Atkin said. AT&T is now losing around 1.7 percent of its subscribers each month, compared with 1.1 percent at Verizon. T-Mobile’s churn is 2.6 percent, while Sprint’s is 2.3 percent.

AT&T executives say the buzz created by the iPhone will generate interest in their other products and inspire customers who do not buy the Apple device to perhaps buy a different phone from the company. To accommodate the expected demand this summer, AT&T is hiring an average of one extra temporary worker in about 1,900 of its wireless stores who will be trained to sell the iPhone.

“This is going to drive a tremendous amount of traffic and energy to our stores,” said Glenn Lurie, president for national distribution of AT&T’s wireless group. He added: “It’ll help our growth not just in iPhones but in our overall business.”

Mr. Lurie declined to say how much money AT&T is spending to market the iPhone or how many phones it expects to sell. He said he was not concerned that consumers would balk at the price of the iPhone, which costs $499 or $599, depending on how much memory it has. The phones require a two-year service contract and, unlike most other phones AT&T offers, it will not be subsidized by the company.

“Price is not an issue,” Mr. Lurie said. “It combines multiple functions and it’s the best iPod ever built.”

On this issue, and others, Verizon begs to differ.

“AT&T set the initial price very high, so it’ll likely do better once they lower the price, and align it with the value they offer,” said Mike Lanman, the chief marketing officer for Verizon Wireless.

Mr. Lanman said Verizon already had at least 18 music-capable phones. In the next few weeks, he said, it plans to introduce a new model of its Chocolate phones that allows not just downloading of songs over the air but also transferring music from computers.

Mr. Lanman said he was not worried that AT&T would steal customers because Verizon’s network infrastructure is superior and offers better connection coverage and stability. “For Apple, I think the big risk is the AT&T network.”

Some industry analysts agree that the iPhone is not necessarily destined to be an instant or significant buoy to AT&T’s business.

Edward Snyder, an equity analyst with Charter Equity Research, said that many people would be turned off by the price; older customers who can afford it, he said, will not care about all the fancy features of the iPhone, while younger ones who are excited about the device will not like the cost.

Over all, Mr. Snyder said, the iPhone will appeal to maybe 3 percent to 5 percent of wireless phone users. And he said he was skeptical that it would work as well as advertised.

“Implementing a cellphone is absolutely more difficult than anything Apple’s done to date,” he said, noting that, in particular, the phones might have trouble delivering consistently good voice communications and that the devices could suffer overall reliability problems. “Go out and buy an iPod and hold it at waist level and drop it. That’s the end of the iPod.”

“I don’t think Apple’s going to be a big player in this at all.”

The deal could actually go badly for AT&T because it will spend a lot of money to market the phone and then not wind up with the returns it hopes for, Mr. Snyder said. But Mr. Snyder joins other analysts who agree that, if nothing else, the iPhone will accelerate innovation in the handset market.

Bill Plummer, vice president of Nokia’s multimedia group in North America, disagreed with the assertion that the iPhone would bring fundamental change to the market. He said Nokia already sold high-end phones with a wide range of functions, including the N95, which has a five-megapixel camera and a hard drive to store and play music. The phone works on either the AT&T or T-Mobile network and sells for $749.

In case you haven’t noticed, Nuance is quietly putting togther the pieces on an interesting strategy. With the acquistion of Tegic (and previously VoiceSignal and Bevocal), they further get closer to the device and apps. I had known about this deal for a couple of months but couldn’t write for obvious reasons. AOL’s wireless strategy has been floundering all over the place, don’t know well and for how long can they compete in the market place.

4Info, the Palo Alto mobile search company we feared might become roadkill by Google and Yahoo, has surprised with solid progress in serving ads in text messages.

It’s on track to serve 50 million ad units for the next quarter, at a whopping $50 dollars per thousand messages (equivalent to $50 CPM in advertising parlance). This is remarkable since the service was only launched last month. Indeed, 4Info has sold out its entire inventory of messages. Do the math: This gives 4Info $2.5 million in revenue next quarter

In the US, one state after another is banning not only talking while driving but also messaging while driving (the latter can of course be deadlier of the two). So, how can one keep chatting away. Enter TravellingWave. With some sophisticated voice-entry technology, it is like Tegic for your voice. Helps dictate your message quickly and accurately. How soon something like this will be in the phones? Hard to tell but speech is becoming a way to interact with applications already, it won’t be long before messaging is also included in the mix.

I have said for a long time that Privacy is Google’s Achilles heel. They should try to get in front of the problem or else they will keep playing defense just like Microsoft has been doing with security for so long. Of course, the issue is not as black and white, but Privacy is a sensitive issue, esp. in this day and age.

First and foremost, one has to realize that one size doesn’t fit all. User population can be easily buckted into 10-100 segments with varying degree of privacy needs and expectations. The problem has been, companies have designed the generic rule-set for the entire population. Second, user’s should be given control of their own information. If i want to delete everything that Google has on me, I should be able to do that, if i just want to anonymize my history, so be it. As John Battelle posits in this post “Just Asking”, people are starting to freak out. (Why would corporations store their sensitive data, even on Google is beyond me). But if users have better control over the information, people will be willing and able.

Road warriors live and die by emails, they are also the ones with deep pockets or corporate stash fund to buy devices like iPhone but would they carry two? most wont. i had raised this point when the device first surfaced in Jan. i will still be surprised if Apple doesn’t offer a RIM and/or Exchange solution for email. Perhaps not at launch but has to do something within 1-2 months to resolve this issue or else the one million interested will drop by half.

Another point on iPhone, the 1M interested customer number has been thrown around quite a bit. It is likely based on the emails AT&T has recieved (from their online form). I had also sent one though i don’t intend to buy one. I bet 20-30% of the people are just curious onlookers, journalists, competitors who want to be notified about anything to do with iPhone.

But, maybe AT&T has done other surveys to figure out the numbers or maybe not?